Claiming expenses for commission earners

Written by Roedie van der Merwe.

Many individuals, from brokers to estate agents to salespersons, operate on a commission-based income system. Unfortunately, a significant number often lack sufficient knowledge regarding the expenses they can legitimately claim on their personal income tax returns. As a result, they heavily depend on the advice provided by their tax practitioners, which could be detrimental if the practitioner is either misinformed about allowable claims or advises aggressively, pushing the boundaries of legality without the taxpayer’s awareness of potential risks.

It is crucial for taxpayers to be well-informed and knowledgeable about their tax rights and limitations.

The deductions for business expenses available to commission earners are broadly similar to those for individuals who are sole proprietors or independent contractors.

Who Can Claim:

Individuals earning more than 50% of their total income from commissions, or operating as a sole proprietor or independent contractor, are eligible to claim expenses if:

• The expense or loss was actually incurred.
• It was in the production of income.
• It is not of a capital nature, in line with the Income Tax Act’s requirements.

These business-related expenses can be claimed against commission income, potentially reducing taxable income and resulting in a refund from SARS if PAYE has been overpaid.

What Can Be Claimed:

SARS allows the claiming of expenses against income if it meets the criterion of being “Incurred in the Production of Income”. This test determines the claimability of an expense based on its necessity for generating income.

Travel Costs:

Commission earners can claim actual travel expenses, unlike other employees who may not receive a travel allowance or use of a company vehicle. Business kilometres for visits between home, office, and clients are claimable, but personal travel from home to office is not.

Vehicle Costs:

Claims can include wear-and-tear allowances, interest on installment sale agreements, maintenance, fuel, licence, and insurance costs. A detailed logbook helps in apportioning travel expenses correctly.

Phone and Internet Costs:

Expenses for business use of cell phones or home office internet are claimable, often at an 80% business to 20% personal use ratio.

Entertainment Expenses:

Expenses for sales and marketing initiatives are claimable, with documentation required for verification.

Other Claimable Expenses:

Includes a wide range of business expenses, such as accounting and legal fees, marketing costs, small assets under R7,000, and many others directly incurred in the production of income.

Supporting Documents:

SARS requires detailed supporting documentation for deductions, which should be retained for five years and may need to be submitted if the ITR12 return is selected for verification.

Home Office Claims:

The pandemic-induced shift to remote work has highlighted the criteria for claiming home office expenses. To qualify, the office must be regularly and exclusively used for business, among other requirements. Specific expenses related to the home office are claimable.

Capital Gains Consequences:

Using part of a home as an office and claiming deductions can affect the capital gains tax exemption on the sale of a primary residence.

Solar Incentives and Claims:

The 2023 Budget introduced tax incentives for individuals and businesses installing solar panels, aiming to alleviate the energy crisis and encourage renewable energy investment.

Taxpayers should strive to understand what they can and cannot claim, emphasizing the importance of consulting a qualified and competent tax practitioner or advisor for advice.